Thursday, October 6, 2016
A little known pension perk available only to New York City teachers cost taxpayers an astonishing $1.2 billion last year, a watchdog group reported Wednesday.
The sweet deal guarantees that teachers who sock away money for retirement in a special Tax Deferred Annuity (TDA) receive a 7 percent annual return. In stark contrast, banks currently pay depositors just 1 percent or less on most savings accounts.
And city taxpayers are the de facto guarantors for the high rate of return — on the hook to make up the difference if the annuity falls short of the guarantee.
Knowing a good thing when they see it, increasing numbers of teachers are stashing their cash in the no-lose annuity, the Citizens Budget Commission found.
It said that there are now 137,000 participants in the plan, including 51,000 retirees. But only 3,000 are drawing on their funds.
The rest, according to the commission, are watching their nest eggs grow at a fixed rate available to no other city employee.
And that’s over and above the teachers’ regular pensions.
“You don’t get a guaranteed rate of return with your 401(k). But teachers do” in that special annuity, said CBC research director Charles Brecher.
“It’s a good, positive math lesson for teachers. It’s a bad, negative math lesson for taxpayers. The teachers get this huge taxpayer subsidy. The city should treat the teachers like everyone else.”
Former city labor director James Hanley said the guaranteed 7 percent — which he negotiated down from 8.25 percent in 2009 — is indefensible.
“Nobody else has such a system. This is a little ridiculous. It’s tough to sustain in the long term,” Hanley warned.
The annuity is a voluntary program to supplement traditional government pensions.
Other city employees have them — without the guaranteed 7 percent return.
The sweet deal kicked in when the state Legislature in 1988 allowed teachers to designate all or part of their pension contributions to the fixed-return fund, which at that time was paying 8.25 percent, then close to the return of federal-government bonds.
After the 2008 stock-market crash, the fixed-rate option grew in popularity. In 2007, the annuity fund stood at $7.4 billion. Last year, it held $18.7 billion.
Taxpayer subsidies have also grown, from $238 million in 2007 to $1.2 billion last year.
The CBC urged the city to end the 7 percent guarantee, particularly for new hires.
The CBC pointed out that while government pensions are protected by the state Constitution, the annuity isn’t.
Any changes would require taking on the powerful teachers union.
Mike Mugrew , president of the United Federation of Teachers, argued that taxpayers have actually come out ahead.
“The CBC report neglects to mention that over the last 25 years, the city has actually made a profit from this fund, since its investment returns over that period have exceeded the guaranteed rate of return promised by the TDA,” he said.
Mayor de Blasio’s office had no immediate comment.